Government Finances

Background

Alberta was the first, and only, Canadian province to default on its debt in April 1936. The nature of Alberta’s resource dependent province has paradoxically produced relatively stable and long-lived governments: Liberal (1905-1921); United Farmers of Alberta (1921-1935); Social Credit (1935-1971); and Progressive Conservative (1971-2015) but notoriously volatile fiscal policy. The volatility was due to the province’s dependence on fluctuating prices for wheat and other grains as its principal export commodity in its early development and oil and natural gas since the 1950s.

In 2015, the surprise election of the New Democrats, catapulted an inexperienced group of individuals into policy-makers and legislators facing the worst fiscal crisis since the early 1990s. The fiscal crisis was the product of a decade of fiscal neglect as an aging Premier (Ralph Klein) carried on in office after the province’s debt had been paid off. As energy prices rose in the mid-2000s, the desire to spend on infrastructure, increase public sector salaries (after a period of some restraint), and to cut taxes and medicare premiums, sowed the seeds of the current crisis.

At present, the new government is deliberately not doing what its predecessor was forced to do in the mid-1990s- cut spending. As a consequence, the province’s credit rating has dropped by two notches. Coupled with the recent wildfires in the Fort McMurray area, tax revenue is expected to fall creating more fiscal stress ahead.